If you have a small business, you may have considered hiring accounting and bookkeeping services. You may use the two terms interchangeably. Maybe you even wonder half-seriously if an accountant is just an expensive bookkeeper. So, what exactly is the difference between bookkeeping and accounting?
Bookkeeping vs. Accounting
The difference between bookkeeping and accounting is basically the difference between recording numbers, and interpreting those numbers. Bookkeepers focus on the manual, day-to-day recording of data throughout the month and the year. Accountants take the bookkeeper’s work to interpret and use the financial data.
What a Bookkeeper Does
The bookkeeper usually acts as a proxy for the business owner. If you have a small business, you know how time-consuming the recordkeeping part of the business can be. Hiring a bookkeeper to take care of these sorts of tasks is an enormous time and energy saver for a busy entrepreneur.
While a bookkeeper does not have to have any sort of professional licence or certification to practise, they must have strong organizational skills and attention to detail. Missed or unrecorded payments can have a large impact on small business financial statements. The following is a list of tasks bookkeepers can usually complete. If you are considering hiring a bookkeeper, you may wish to do some of these tasks yourself and let the bookkeeper handle others.
- Record Transactions in the Ledger
Tracking and recording purchases, sales, and expenses probably eat up the largest part of the day-to-day bookkeeping for a business. The ledger can be as simple as a paper notebook for a very small company, or as detailed as accounting software for a business of any size.
- Record GST collected and remitted
If your business is required to collect GST, you must record and store this amount separately from your sales figures. A bookkeeper can do these calculations and handle the monthly, quarterly, or annual payments.
- Bank Account Reconciliation
A bookkeeper can complete monthly bank statements or credit card reconciliations. However, ensure that you, as the business owner, maintain a division of responsibility. To ensure absolute accuracy, the bookkeeper should not have control over both payments and the reconciliation process.
- Payslips for employees and contractors
Bookkeepers can complete the entire payroll process, from recording the payments in the ledger, cutting checks, and issuing T4 and T4A forms (W2 or 1099 for the US) at the end of the year for income tax purposes.
- Compiles general ledger data into financial statements
Lastly, the bookkeeper can take the final numbers from the general ledger at the end of the reporting period to create the financial statements. This job would probably be a collaborative effort between the bookkeeper, the owner, and an accountant.
What an Accountant Does
An accountant generally has a bachelor’s degree in accounting and further education in a specialized area such as audit or tax. Most accountants who have their own business are professionally licensed as a CPA, or certified public accountant.
Accountants have the same general framework of accounting knowledge as a bookkeeper – the system of journal entries, and the structure of the financial statements – but they utilize that knowledge differently.
- Reviews bookkeeper’s work
The accountant can act as an end-of-year audit to the business owner’s or bookkeeper’s recordkeeping. Finding and fixing financial mistakes can mean the difference between a large or small tax bill, or between finding additional funding or being denied.
- Completes adjusting and closing journal entries
At the end of the month or the year, certain accounts in the ledger have to be “closed out” so they can be restarted fresh in the next period. This means moving the balance of that account to a different account where the balance will accumulate or decrease over time. A bookkeeper could perform this task, but if the owner employs a bookkeeper and accountant working together, the accountant is usually responsible.
- Analyzes financial statements with the business owner
This is where the accountant’s job really differs from bookkeeping. A good accountant will have the knowledge and understanding to look at financial statements and suggest strategic decisions to the owner based on the data. Synthesizing data from multiple financial statements is where the accountant’s professional knowledge shines.
- Completes and files tax returns
Accountants also prepare and file tax returns on behalf of the business owner. Small business tax accountants usually work with the business only during tax season, or periodically throughout the year for tax planning purposes.
Bookkeepers and accountants share the same knowledge base but have different applications for the same knowledge. If you are overwhelmed with the day-to-day recordkeeping for your business, or numbers “just aren’t your thing”, you probably need a bookkeeper’s help.
On the other hand, if you have a pretty good understanding of basic bookkeeping and have a good system going, you’re all set. However, if you need extra funding for your startup, or help to sort out taxes, an accountant will have the expertise you need. Once you determine what you need, help is just a click away.
About Accountero
Accountero is a “built for founders” financial hub for growth-focused startups. We simplify the accounting process for business owners. Get access to human-driven, tech-powered bookkeeping services, one-click access to advisors to help you save on taxes, as well as high-level reports to identify areas of growth potential. Talk to us today about your accounting needs.
Accountero is a tech-powered service provider offering bookkeeping, tax advisory and fractional CFO. Accountero is not a public accounting firm and does not offer services that require a public accounting practice license.